how do you negotiate for owner financing
hey guys welcome back my name is Daniel welcome to our YouTube channel today
we're gonna be talking about how to negotiate for owner financing or seller
financing but before we go ahead and do that guys please like this video
subscribe this video as well really helps us push out the content so let's
go ahead and get right to it so I've done my fair share of owner financing
deals and also meaning I sat in my fair share of an owner financing negotiations
and today I'm gonna help you guys kind of navigate through certain things and
I'm also gonna provide for you guys a great resource at the end which is
completely complimentary that you guys can complete the knowledge that I'm
gonna share with you guys in the next 10 15 minutes or so so number one we got to
talk about the mindset when it comes to negotiation as a whole one of the worst
mindsets that for some reason people want to go ahead and take and have you
when they're negotiating is that they want to compete with the other
individual you know when it comes to negotiating a lot of individual will ask
me hey Daniel what is like the one phrase or what is the one technique that
I could say to a person to get tend to do what I want guys it doesn't work like
that and for me if there was such a technique I wouldn't want to know it and
I wouldn't teach it to anyone because that is not a sustainable way to build a
business you want to build relationships and how do you build relationships is
through collaboration not competition collaborate and not dominate is what I
always say when it comes to negotiations your job is to create a win-win scenario
now what do we have to do to create the biggest win-win scenario well we got to
find what is a win in the first place for example do you guys watching this
video right now right I know you clicked on this video because you want to learn
how to negotiate for owner financing but have you not clarified and define what
makes it a win for you in a real estate deal does that mean cashflow doesn't
mean equity accumulation does that mean having it in a good area with low risk
does that mean higher risk with a lot of upside for building value and having
income coming in what does that mean for you what is a win define for you for
example for me personally having a large cash flow is not a win for me personally
now if I had an investor or passive investor invest with my deal and
cashflow was a huge win for them then obviously I would gear towards that
direction as long as were within safe parameters
protecting our risk we're mitigating our risk I'd be more than happy to do that
but for me a win is when I'm accumulating a lot of equity for me it's
the opportunity for me to build value increase my equity position so that way
the 10 year older version of me is going to thank me for what I do
today and also how is a win defined for the person that you're negotiating with
remember not negotiating against but negotiating with what defines a win for
them and that's step number one right I'm gonna share with you guys three
steps on how I personally negotiate for owner financing number one is to
identify their problems identifying their problems means asking a series of
questions and also follow-up questions to see what are their pain points and
what also drives them now I use what I called the goals method to be able to
ask good quality questions because let's be real not every single person knows
how to ask good questions maybe that's something that you're struggling with
right now not everybody knows what questions to ask what to say so this is
maybe the reason why you clicked on this video so I'm gonna point you guys at the
end of three resources completely complimentary in which the goals method
is actually dissected and taught by the guy who invented it who happens to be my
very good friend Levi McPherson so I'm gonna share with you guys a resource at
the end on how to do that so number one identify their problems through asking
good quality questions asking follow-up questions and figuring out what is their
pain point and also what is their value you want to find reasons as to why
they'll make a decision what gets them out of the bed in the morning what
defines a win for them step number two I use what's known as the line technique
now guys let me stress this enough if they are an individual that does not
need owner financing so meaning based on their pain points and their values they
don't want owner financing they'd much rather take cash
guys give them the cash offer right don't do owner financing if the
situation doesn't call for it right we learned in kindergarten that square pegs
don't fit in round holes so if it doesn't call for it don't do it but if
it does call for it I like to use what I call the line technique right and I
simply explain and by the way guys I never say the word owner financing I
never do that because it may trigger a negative response maybe they heard a
story from a friend whatever maybe but I don't want to trigger that negative
so literally all I say is hey I'm gonna give you two choices here's the second
choice right the first choice is the cash offer I'd be more than happy to do
so right but here's the second opt for the second offer is actually based on
all the questions I asked and things I've heard from you I actually decided
and created a way where I can help you with each one of those obstacles and
also the things that you value so this is a scenario in which you would
actually be the one financing me so here's option number one so option
number one is I give you cash now let's say for the sake of the example that you
know the building is worth $1,000,000 right you're buying a 12 unit building
for the sake of the example and let's say the building is worth $1,000,000 and
they're asking for $1,000,000 that option one I say hey I'm gonna draw this
line right so you guys see this line right here it's not a pretty line but
I'm not a very good artist I'm an investor so I'm gonna say hey here's
option one I give you the 1 million dollars cash
1 million dollars I'm gonna go to a bank or I'm gonna you know acquire some
investors Emes indicate some funds I'm gonna get you that 1 million dollars
cash I believe here's where your biggest
obstacle is going to be however if I were to give you the million dollars now
again I'm not sure what your financial situation is so you may have to talk to
your CPA you may have to talk to your tax professional after this conversation
if you like I'd be more than happy to even get on the phone with them and also
you do a conference call to explain what I'm about to tell you right now but
chances are you've got some taxes you got to pay now predominantly speaking
now guys before I continue with the video please note that I am NOT a CPA
I'm not a tax professional I'm not a financial adviser I'm just a real estate
entrepreneur who's got some experience under his belt and I'm just sharing with
you guys my experience all right ok we got that out of the way my attorneys
happy that I just said that so we've got 2 different types of taxes that most
people are going to pay predominantly number one is our little friendly
capital gain tax which means that if the individual has owned it for a long time
and the value of the real estate asset has gone up they're gonna pay tax for
that and we're also going to pay what's known as ordinary income tax now
obviously it depends based on their tax bracket it depends on how much money
they make where they are financially but predominantly speaking most real
estate investors and landlords that I negotiate with their capital gains tax
rate is at 25 percent their ordinary tax rate is at thirty nine point seven
percent so on top of that they may also have some debt service that they have to
worry about and they're also gonna have to pay higher closing costs especially
if they're taking a full cash offer so between the debt service capital gains
tax the ordinary income tax based on my experience guys again this is just my
experience I've negotiated with a lot of different landlords in the past and I've
seen this play out many times so maybe you have a different experience but in
my experience the landlord will walk away only with about sixty percent right
maybe about sixty to seventy percent if that person is a little bit more
fortunate but on average they'll walk away with sixty percent some people guys
that I've seen sell their buildings have to bring money to closing because of the
debt service the taxes they have to pay and the closing cost that they're gonna
have to pay as well so I've seen that happen guys believe it or not right it's
not it's not a lot obviously it's rare but I've seen that happen so a lot of
times they'll walk away with just six sixty percent of what they're you know
of what they're actually getting in terms of the offer so just to be
generous right let's just say that number is seventy percent so meaning
that if I were to give them a $1,000,000 we're gonna walk away what's seven
hundred thousand dollars and this is exactly what I explained to the seller
that I'm negotiating with I sit them down said hey listen mister seller right
I don't know if you are familiar with this I maybe you're not maybe you are
but are you familiar with the fact you're gonna have to pay capital gains
tax are you familiar with the fact you're probably going to be ordinary
income tax do you know how much that is do you have some debt service have you
you know rung up the closing cost and how much you have to pay and ultimately
did you figure out how much money you're actually going to walk away with after
you sell this building it's not I highly encourage you for you to talk to your
CPA tax professional etc etc etc right and this is what I draw up and I explain
to them listen mister seller you know I don't know your situation based on the
questions I've asked this could be a benefit now let's move on to option two
now option two it's actually very simple it's a lot more simpler than what meets
the eye this is actually a scenario where I would still give you one mill
in dollars but instead of you receiving cash you would actually be my bank and
you would get it through installment it's kind of like that scenario where
would you rather receive 1 million dollars today or would you rather
receive you know ten thousand dollars a month for the rest of your life right
it's one of those hypothetical scenarios right now granted one is a little bit
more safer than the other but you know the beauty about it is it's a little
more flexible with option two and we can actually create an offer and a
collaboration that actually fits both of us and creates a win-win scenario so in
this case you would be my bank and let's say hypothetically speaking I gave you
about ten percent down just because you want me to have some skin in the game
which is $100,000 let's say you give me four percent interest and let's say we
do it on a twenty five-year note by the end of that twenty five years I actually
would have given you about one point four five million dollars at the end of
that twenty five years meaning that you actually make money off financing me so
you actually make four percent every single year by you being my bank now
again we're gonna have to have a deeper discussion until what all this looks
like but for right now right mr. seller would you rather want one point four
five million dollars or would you rather want seven hundred thousand dollars
which option are you more interested in now at this point of course guys ninety
percent of the people say hey let me let me see what option two is right let me
get a little deeper into what that looks like right but step number three is very
important right and I'm gonna jump to step number three right now because it's
very very essential never you never in a negotiation ever want to push something
that they don't want to do right as soon as you push they're going to resist
right instead of chasing you want to attract you want to create the space for
them to walk into so you want to create couple options right and that's very
very important it's actually a very important sales tactic it's a
negotiation tactic you want to give them the illusion of control you want to make
it seem like they're in control and they're the ones making the decision
remember at the end of the day guys people don't want to be sold to they
want to buy so here's what I say at the end of me presenting the line technique
I say listen mr. celery right it would rather want seven hundred thousand
dollars or one point four five million look I can I can go and you know go to
the get cash I'd be more than happy to do
that now granted very low chance I'm gonna give you that one million dollars
when it comes to cash chances are we're probably gonna go back and forth for
months we're gonna negotiate right you're gonna think I'm low-balling you
I'm gonna think that you're stubborn and you're not moving you're not willing to
work with me right it's gonna be ugly but nevertheless I can still I can still
go down that route if that's what you genuinely need and it's genuinely
looking for or I can go with option two where I give you one point four five
million now again that option is Ike something I kind of came up with based
on what I heard you say about your obstacles and all the the problems
you're looking to overcome that that's something I created just for you right
and it actually would be a win-win but I'm gonna give you the option right it's
completely up to you the balls in your court right you never again want to
press let them make the decision right and if they're smart they're gonna pick
option two right if they go with option one then that's when you start
unfortunately having to go through that process now is there a technique other
ways that I do in terms of negotiating cash offer hundred percent right hundred
percent but I think I can kind of speak for the whole video and for you and me
that there's a lot more to this topic of negotiating for owner financing than
what I just said so I encourage you guys to go ahead and check out this book this
is the free resource that I've been talking about it's 292 pages on the
fourth strategy which is how I actually went from zero to 75 units in one year
without using any of my own money and in my own credit I have case studies in
here I spent an entire chapter talking about owner financing how to negotiate
for what is it and how to raise capital right at the fourth strategy find the
deal owner finances raise the capital cash flow which is property management
and a expand your empire which is all about scaling your real estate portfolio
so if you guys want this book again guys it's completely complimentary all I ask
you guys to do is pay for shipping so again if you want to read it go ahead
because for me personally as the author of this book as the guy who wrote a vast
majority of this book I only want people reading it who are actually going to
enjoy it and do something with it and use it so
again guys click on the link in the description below for you to get access
to complimentary 0 to 75 minutes and one your the fourth strategy 292 pages of
what we talked about today but we're going much much deeper so again guys
thank you for watching this video I'll see you guys in the next